The Dow Jones Industrial Average and the Dow Jones Transportation Average moved closer together the week ending Sept. 28th, helping to close a gap that's opened this year as the DJIA has surged 9% and the DJTA has fallen 2.5%. Both indices were down this week, but the DJTA fell only slightly, 0.4%, while the DJIA fell more than 1%.
According to the Dow Theory, both indices must move upward in tandem to support the idea that a broad recovery is taking place. Unmatched gains by one index are thought to be unsustainable. As regional Federal Reserve banks have been sequentially announcing declining or stagnant manufacturing activity, industrials have suffered.
Earlier this week, heavy-equipment manufacturer Caterpillar
With diversified operations covering many construction projects across the world, Caterpillar is seen as a bellwether company, and its gloomy assessment of global growth sent other equipment manufacturers down as well, with mining equipment supplier Joy Global
Of course, Caterpillar may be priced for pessimism, and at the end of this week it sold for less than 8 times forward earnings. The Motley Fool has put together a premium research report on the opportunities and risks facing Caterpillar. Get your copy today to help you decide whether today's prices are a good entry point.
The Dow Jones Transportation Average was supported by only mild declines in the railroad sector, as well as a particularly strong performance by truckers. J.B. Hunt
C.H. Robinson Worldwide
The Dow Jones Transportation Index's strongest performer was regional airline holding company Alaska Air Group
While stock market pullbacks aren't necessarily fun for investors, I'm continuing to watch how transportation providers and manufacturers perform relative to each other. A sustainable economic recovery will require broad gains in both sectors, so as these indices move together I'm more confident about global growth.
One important area to watch for both will be energy prices. Transportation companies prefer cheap energy prices to offset their fuel costs, while manufacturers like Joy and Caterpillar perform better when energy prices are high, since this drives investment in energy production. Natural gas might be experiencing rock-bottom prices now, but one Motley Fool analyst expects prices to start rising by 2014. Luckily for investors like you, we've identified one stock you need to own for the natural gas revolution. This report is free, but it's available for only a limited time, so get your copy today.
Fool contributor Daniel Ferry owns shares of Caterpillar. The Motley Fool owns shares of Joy Global. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.